The UK's recovery faces "strong headwinds" from the Government's
austerity measures and high levels of consumer debt, the International
Monetary Fund (IMF) has warned.

In its latest report on Europe, the fund said growth will be "restrained" to 1.7pc in 2011 and 2.3pc in 2012, as it pointed out the "pick-up in inflation".

The IMF's warning comes just a day after the Bank of England said the UK faces a toxic combination of slower-than-expected growth and higher inflation.

According to analysis by Capital Economics, the Bank of England believes GDP will grow by "just below 2pc this year and around 2.5pc in 2012".

The eurozone's recovery is expected to strengthen but government action is still needed to restore fiscal health and address weakenesses in the financial sector, the IMF said.

“The main message of the outlook is one of quiet confidence. Europe is doing well overall - both western Europe and eastern Europe - and our projections for the coming months are actually quite positive,” Antonio Borges, director of the european department, said.

The IMF praised the UK for taking steps to tackle it's debt mountain. In pointing out that fiscal consolidation plans by countries will only work if embedded in longer-term plans, the IMF said "Austria, France, Germany, Italy, and the UK have already elaborated specific consolidation plans beyond this year".

In the latest Regional Economic Outlook for Europe: Strengthening the Recovery, the IMF sees growth for all of Europe at 2.4pc and 2.6pc for 2011 and 2012 respectively, after 2.4pc last year.

However, it sees pressure in the immediate future from large rollover debt needs in both the banking and the sovereign sectors, even in the UK. Combined bonds due in 2011 amount to 10pc of GDP or more in Greece, Portugal, and Spain - double the 2007 amount. "Rollover needs have also increased significantly in Belgium, Ireland, and the United Kingdom", the report stated.

“In advanced Europe, policy makers need to take steps to restore confidence -structural reforms, fiscal consolidation, and strengthening of the financial system, most notably in the euro area periphery. Emerging Europe has so far proved resilient to spillovers from the euro area periphery, but it will need to continue reducing its fiscal and financial vulnerabilities and reorient growth towards the tradable sector,” Mr Borges added.

The IMF added that inflation is expected to stay significantly above the Bank of England target, at 4.2pc in 2011, before cooling to 2pc in 2012.

However, it still predicted that "interest rate normalisation may need to proceed more slowly", as economists pencilled in a first interest rate rise for November.

There was brighter news for European trade, with the IMF encouraged by the rise in exports. This has been the case in the UK, with the depreciation of the pound.

Mr Borges added: “One of the most surprising elements of the outlook for Europe is the export performance of some of the core countries, which has been remarkable.

"Europe is of course benefiting from the general recovery that is under way. But it also proves an important point: European integration is delivering efficiency gains, which some countries are taking advantage of to become more competitive.”